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Economic Watch: Pending Home Sales Dip Following Solid Gains

After three consecutive months of solid gains, pending home sales slowed modestly in June, according to the National Association of Realtors on Monday.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.1% to 102.7 in June from 103.8 in May, and is 7.3% below June of 110.8.

Despite June’s decrease, the index is above 100, considered an average level of contract activity, for the second consecutive month after failing to reach the mark since November 2013.

Lawrence Yun, NAR chief economist, says the housing market is stabilizing, but there are ongoing challenges.

“Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved,” he said. “However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates.”

Existing home sales rose 2.6% in June with gains in all four regions of the U.S., but this decline in pending home sales suggests declining activity levels in the pipeline as we head into the third quarter, according to Sterne Agee Chief Economist Lindsey Piegza.

“Going forward, housing demand will depend on subsequent job and income growth. Labor market gains while positive, have centered around part-time, temporary and low-wage employment, insufficient to spark wage pressures,” she said. “With home prices still rising rapidly, far outpacing income growth, many potential home buyers remain sidelined, unable to afford a home purchase.”

Meantime, Yun forecasts existing-homes sales to be down 2.8% this year to 4.95 million, compared to 5.1 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5% and 6% percent this year and in 2015.

The median existing-home price for all housing types in June was $223,300, which is 4.3% above June 2013. This is the slowest increase since March 2012.

In this video, NAR Chief Economist Lawrence Yun talks about the slight drop in pending home sales, the so-called "lock-in effect," the top three reasons people move, and the capital gains tax.